The mechanism for the ring expansion reaction between cyclopropenylidene and azetidine was systematically investigated employing second-order Møller–Plesset perturbation theory (MP2) in order to better understand the reactivity of cyclopropenylidene with the four-membered ring compound azetidine. Geometry optimizations and vibrational analyses were performed for the stationary points on the potential energy surfaces of the system. The results of our calculations show that cyclopropenylidene can insert into azetidine at its C–N or C–C bond. From a kinetic viewpoint, it is easier for cyclopropenylidene to insert into the C–N bond of azetidine than into the C–C bond. During the first insertion step and the second ring-opening step, it forms spiro and carbene intermediates, respectively. In the following two H-transfer steps, the carbene intermediate forms allenes and alkynes, respectively, as products. From a thermodynamic perspective, allenes are the dominant product because the reaction is exothermic by 373.4 kJ/mol−1.